There is, unsurprisingly, precious little detail, but McDonald’s is starting to generally talk up and validate its $300M acquisition a year ago of the Israeli AI startup Dynamic Yield, which is enabling the QSR giant to optimize suggestive selling in its drive-thru lanes and elsewhere.
On its Q4 2019 earnings call, President and CEO Chris Kempczinski said Dynamic Yield’s suggestive sell technology was deployed in more than 11,000 drive-thrus and was contributing to growth in the average order value.
Kempczinski, on the call, related two acquisitions done last year – Dynamic Yield for its suggestive sell capability and Apprente for voice recognition ordering.
“I think in the case of Dynamic Yield,” says Kempczinski, responding to an analyst’s question, “what we saw there was really an opportunity for us to accelerate our rollout of suggestive sell across most of our major markets there with what we believe to be kind of the leading technology in the industry. And so with the idea of really wanting to drive an acceleration and do it with a leading partner, we made that acquisition of Dynamic Yield.”
“Fast forward, even less than a year later, we’ve got Dynamic Yield in all 10,000-plus U.S. restaurants with a drive-thru. It’s fully rolled out in Australia. And we’re seeing a comp lift, very consistent with what we had modeled when the acquisition was done. Similarly, with Apprente, we’ve got Apprente in test in a handful of U.S. restaurants, and we remain optimistic about that.”
“So I think what you’re seeing really is, for us, just an emphasis on – we believe digital has the opportunity to really be a huge growth driver for us. When we can partner with people and do it kind of under our traditional model, that’s always our preference. But if there are times that we need to do an acquisition, we’re certainly not going to take that off the table. I think your question about is there a model in terms of how that gets shared with franchisees, I think one benefit is when you get the lift that we are getting with something like Dynamic Yield, we obviously participate through rent and service on that. So I’d say the first part is all of these are meant to drive top line growth, and when we see that, we certainly participate from rent and service.”
“On the ongoing costs, the ongoing costs do get passed through to franchisees as part of our normal tech fee, we kind of separate tech costs between development costs and sort of the ongoing operating costs. We will typically pay for the development costs on our own, and then the ongoing costs are what gets shared through a tech fee arrangement with our franchisees. So that’s been kind of our model for a long period of time. I don’t see that model changing.”
CFO Kevin Ozan also talks about Dynamic Yield on the call:
“And then regarding kind of quantifying the Dynamic Yield lift, we generally don’t quantify specific components of our comp. What I would say is it will be potentially different in different countries. So right now, we’re certainly getting a bigger lift from Dynamic Yield in the U.S. than in Australia. In Australia, they had a rudimentary suggestive sell already in the drive-thru.”
“So as we put a Dynamic Yield, there wasn’t as larger a lift as we’re certainly experiencing in the U.S. But the big positive about Dynamic Yield is our plans would be to take that similar decisioning engine-type logic and be able to use that further in kiosk and global mobile app ultimately, so that we need – can continue getting further sales lifts in other digital mechanisms also.”
Drive-thrus, for some QSRs, represent as much as 2/3s of their orders, so using AI and tools like computer vision and sensors to tune what motorists see on pre-sell and menu/order screens can be powerful.
If AI/machine learning can in real-time predict, based on patterns, the types of upsells that might resonate with the customer approaching the order station, it can dynamically serve them up on screens. That beats pushing Happy Meals to teenagers or motorists with no kids.
There is reason to think this is the way drive-thru tech will go, particularly since McDonald’s is saying, albeit generally, that it works.